Bangalore/Mumbai On Wednesday, the benchmark Nifty 50 index fell by 2.3%, while the shares of Britannia Industries Limited closed with a gain of 3.5%. In early trading hours, the stock was up nearly 10% before turning gains amid a decline in broader markets. Investors are happy with Britannia’s mid-single-digit volume growth in the March quarter (Q4FY22). This comes at a time when rural demand was low and the company hiked prices to beat the high cost.
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Analysts said, “Despite sharp price increases of around 11.5%, volume growth continues despite Grammarly reductions in convenience price-point packs (about 40% of sales) by two-thirds and one-third increase in maximum retail prices.” is.” From Nomura Financial Advisory and Securities (India) in a report on May 3. In fact, consolidated operating revenue grew 15.5 percent year-on-year (YoY). 3,508 crore.
Perhaps, this is where the good news ends. The cost pressure is hitting hard. In Q4, as per Britannia’s presentation, the relevant commodities, such as flour, refined palm oil, sugar, cashews, saw an overall average inflation of 17%.
Higher input costs meant a year-on-year decline of 243 basis points (bps) in gross margin to 38 per cent. One basis point is 0.01%. However, earnings before interest, tax, depreciation and amortization (Ebitda) margin fell 66 bps slower to 15.5%, aided by lower cost of staff.
If commodity prices remain at the same level, the company expects another 10% hike as the hike so far has not kept pace with inflation, the management said in a post-earnings call. This can weigh on demand, leading to a decline in trade. The company does not see inflationary pressures easing anytime soon. It also expects grammar cuts compared to the levels seen in FY22.
It is encouraging that Britannia’s market share has grown by 80 bps in the last two years. The management said it is also gaining market share from smaller regional companies and its competitors. That said, investors should keep an eye on the company’s forays into new territories and the growth trajectory in adjacent businesses.
However, despite Wednesday’s rally, Britannia shares are down nearly 6% in CY22 so far against Nifty FMCG. Data from Bloomberg shows the stock is trading at about 44 times estimated earnings for fiscal 2013, which isn’t a very high price tag, though cost pressures could keep significant volatility out. “The stock may continue to underperform its benchmark index until inflation has largely calmed down, or there is a solid recovery in rural demand. Until then, reappraisal is unlikely. That said, the stock should outperform FMCG peers considering a better growth trajectory in FY22-24E,” said Himanshu Nayyar, principal analyst, institutional equities, Yes Securities.